The Standard Mail section of the company is the strongest and most revenue producing segment of the company. They have recorded a strong performance for the last five years and accounts for 37% of the total revenues every year. The Standard mail is typically used for bulk advertisement to multiple delivery addresses. USPS offers the advantage to reach a very specific area to be targeted since it can be divided from a single household, street, block, neighborhood, and zip code to all of the households of the country.
The USPS in order to control the resources used to deliver any output including labor, materials, transportation and capital deployed has implemented the TFP indicator software. It measures the relationship between resources and outputs. Since its implementation, TFP has helped the company lower the expenses a total of 12.8% which is equivalent to a total of $1.2 billion dollars annually.
In a further attempt to improve efficiency, USPS is developing more flexible logistics networks by creating Surface Transfers Centers to expand transportation surface reach. USPS is also creating partnerships with the additional mailing providers like FedEx. They now distribute most of the rush services, and in exchange they transport FedEx packages.
Weaknesses
Although USPS now offers the ability to purchase postage online, it is important to note that customers should expect a lower-quality service. Tracking information for example takes a long time to be uploaded on the website; it is not uncommon for the addressee to receive the package before any tracking information becomes available. Express postage can be purchased online at a slightly discounted rate; however, shipments are not guaranteed and usually take one extra processing day. If the customer wants delivery guaranteed, he or she will have to go to a post office and pay the price difference. Insurance on items worth over $500.00 must be purchased over the counter, which usually results in customers having to wait through long lines.
The Postal Accountability and Enhancement Act (Public Law 109-435) signed into law by President Bush in December 2006 divided the services provided by USPS into two categories: mailing (or market-dominant) and shipping (or competitive) services. Mailing services account for 90% of the company’s revenues; however, there is a price cap increase based on the CPI-U (Consumer Price Index –All Urban Consumers) that aims to ensure that services “can be preserved at affordable prices. For commercial mailers, the law is intended to provide price predictability. For employees, customers, and taxpayers, the law is designed to provide assurance that the employer portion of the Postal Service’s health and retirement benefits becomes fully funded in the future” (Annual Report, 2008). There is no upper limit on price changes for the Shipping Services division; prices will be adjusted as necessary (prices must cover 100% of attributable costs and 5.5% of total institutional costs.
Cara Wood summarizes financial information for the company for the period April 2008 to April 2009; USPS saw seen an 11.9% decline in its operating revenue. Mail volume decreased by approximately 7.6 billion pieces for the same period (14.8%); the company had forecasted only a 4.8% decline. The Shipping Services division (Priority & Express Mail and Parcels) has seen a decline of 13.7%; the Mailing Services division (First-Class & Standard Mail, Periodicals, and Package & Special services) has felt a 12.3% year-to-date drop. Currently the company faces a net loss of $2.67 billion (Wood, 2009).
Unlike its main competitors, FedEx and UPS, USPS is a semi-independent governmental agency that operates to break-even. The company is in business to match its revenues and expenses, not to make a profit. And although inflation is used to cap price increases on the company’s Mailing Services division, the same does not apply to the company’s operating costs. In its 2008 Annual report, the company admits that “postal costs are heavily concentrated in wages, employee and retiree benefits, and transportation” (Annual Report, 2008). In his editorial, Kemper states that “78% of total postal costs go to wages and benefits, of which 19% percent is benefits” (Kemper, 2008). More than 85% of the company’s career employees are represented by unions, and the company spends over $300 million every year trying to resolve labor-management disagreements. Moreover, USPS must face the continuous expansion of its delivery network; more than 1.7 million delivery points are added every year. There are “daunting statutory process[es] and heavy political flak when it wants to close unprofitable post offices” (Kemper, 2008); more than 16,000 post offices lose money each year.
Opportunities
“According to the US Commerce Department, online shopping rose by 20% in 2006, extending a seven-year trend of double-digit growth. The US online retail sales reached $175 billion in 2007 from $144.6 billion in 2006. Further, the online sales are expected to grow at a rate of 13.9% from $175 billion in 2007 to $334.7 billion in 2012” (United States Postal Service, 2008). It’s very apparent that the online shopping market is rapidly growing. Between work, school and our busy lives, online shopping is becoming a new trend. Books, videos and DVDs are the favorite low-ticket items sold online, but clothing and bigger-ticket items are becoming more popular. USPS is a leading facilitator of global e-commerce. The company provides a portfolio of solutions that streamline the customer's shipment processing and integrate transportation information into the retailer's business applications. With the expected growth rate of online shopping, the deliveries of goods are expected to increase substantially, which would boost the revenues of the company.
“There is growing tendency for the US direct marketing market in 2008. The US marketers spent approximately $173.2 billion on their direct marketing advertising in 2007, representing a modest 4.4% increase over the $166 billion that was actually spent in 2006. Looking forward, however, the growth rate for direct marketing expenditures in 2008 is expected to bounce back to 5.7%, or $183.1 billion” (United States Postal Service, 2008). Companies are heavily investing in commercial e-mail, internet marketing, DRTV (direct response television), and direct mail (including catalogues). Direct Mailings are a very cost-effective tool for businesses to advertise their service. Many businesses use this form of advertising to attract customers because of its low cost and high reach. As we see this market growing, USPS provides media to encourage direct marketing. Hence for the growing trend of direct marketing it would enable the company to boost its growth. In addition with the enforced regulations on phone advertisement imposed by the government and the many laws protecting the consumers from unwanted phone calls and faxed transmissions. Mailing ads is a powerful alternative to target the “Do Not Call” registered customers which numbers tend to increase at a very high rate.
USPS witnessed 3.8% increase in Priority Mail volumes in 2007 over 2006. This class of mail has become increasingly attractive for small volume users who generally cannot negotiate discounts or other pricing concessions with private sector competitors. Moreover, its ease of use owing to online purchase of postage and print mailing labels with free delivery confirmation has helped increase its popularity. Priority Flat Rate Box, a specialized service provided at flat rate, has also contributed to growth in Priority Mail. Through this service, customers can send packages via Priority Mail at a flat rate of $4.6. By taking additional marketing initiatives, the company can further bank upon this service.
Another opportunity could be to make the USPS locations more business friendly. By offering printing services, consumers can come to the locations to create their desired projects. This service, currently offered by its competitor, FedEx, has helped them increase sales and attract more customers to their stores. By taking a similar approach, USPS can also not only be the top for mailing services but also attract another target market to its locations.
Threats
The economy has taken a toll on the United States Postal Service and there has been less mail coming through this past year. In 2007, the United States Postal Service recorded over 211 billion units of mail, where in 2008 it had dropped to 202.7 billion units. Being that this is a digital age, the company feels that this could become a concern. Since the rise of the internet, it was predicted that paper mail and documents would go into a decline and that it would eventually be ruled out by instant messaging and email. With the increase of free email services, text messaging, wireless internet, even the ability to get PDF files, spreadsheets and documents on your phone, you no longer have to go through a postal service. The amount of mail being generated had been on an increase from 1970 to 2007. Perhaps the digital age has finally caught up. At the end of 2008, the company reported a loss of $2.8 billion due to the lower amount of mail being generated for the year. This is something that they are going to have to be aware of and pay close attention to.
Another challenge that they are having is with the consideration of service. There are a number of classes, types, sizes, and weights that they have to consider and they need to figure out the best way to assign the mail to their transportation resources. Because other companies like UPS and FedEx have been investing in optimization technology for transportation, USPS has recently decided to go that route as well but that puts them behind (Morton, 2008).
High Oil Prices have been increasing the company's price on refined fuels. Due to the rising price of crude oil since 2004, the company has high transportation costs which can impact operating expenses. In 2004, crude oil was around $37 a barrel. In June of 2008, it reached almost $150 a barrel and this affected their margins. Although the price of crude oil per barrel is much less now then from last summer, the price of oil is starting to rise again which is going to give the United States Postal Service more problems if it keeps continuing to rise (United States Postal Service, 2008).
Intense competition is another threat that USPS faces. Price, frequency and capacity of scheduled service, the ability to track packages, the extent of geographic coverage, reliability and innovative service offerings is what is focused on in the industry and as of now, their top competitors have strong financial resources along with their operational resources (United States Postal Service, 2008). Also, their competitors have the ability to expand their operations in the United States which can have a harmful effect to their business. As of right now, their top competitors are UPS and FedEx and their businesses both have less revenue spent on labor (roughly 40%-55%) but USPS spends around 75%.
The Postal Act of 2006 was another external factor that played a part in increasing their expenses. They were required to pay $5.6 billion to prepay the health benefits for retirees. In February, the head of the United States Postal Service, John Potter, asked Congress to remove $2 billion of the funds off their books. In the long run, the act will help them but it couldn't have come at a worse time because now the postmaster general is telling Congress that they are in a “financial crisis” and something must be done to help keep them running on a six-day week.
Recommendations
After doing the SWOT Analysis on USPS it is much clearer to see what this company needs or could do in order to survive in this economy and in turn boost sales. With the online market on the rise, USPS can improve its online services to be able to reduce overhead because customers may order services by themselves.
With the advertising market also growing, USPS can work on selling ads to more companies and obtain affiliation or relationships with other businesses to become their main service provider of Priority Mail and Package services.
Knowing that the USPS is a government funded company, appropriate officials can request new regulations that allow the company to be more flexible with pricing. Lastly we also recommend the company to invest more on fuel efficient vehicles like, hybrids, in order to save on the consumption of gas.
Sources
Kemper, K. (2009, February 1). The Postal Service is a dinosaur with a 2009 mission; but it can be saved. Associated Content. Retrieved June 17, 2009. Retrieved from http://www.associatedcontent. com/article/1439016/the_postal_service _is_a_ dinosaur_ with.html
Morton, Roger. The Post Office Looks for Better Returns. Outsourced Logistics 1 no7 14-16 D 2008
Shines, Vonda. U.S. Postal Service Tries to Cut Mail Delivery to Five Days a Week. May 22, 2009
Wood, C. (2009, May 28). USPS revenue and volume continue to plummet. DMNews. http://www.dmnews.com/USPS-revenue-and-volume-continue-to-plummet/article/ 137635/
G2 Computer Intelligence, Inc. USPS Contemplates Cutting Deliveries. ePostal News: NA, February 09, 2009
New York Times (National Edition), 158(54615): 2. March 15, 2009. Fewer Letters and More Space in the Mailbox.
United States Postal Service. USPS 2008 Annual Report. Retrieved June 17, 2009. Retrieved from http://www.usps.com/financials/_pdf/annual_report-2008.pdf